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Annual Report and Accounts
2006

Table of contents

  • Page 1
    Annual Report and Accounts 2006

  • Page 2

  • Page 3
    ... operations of the parent company and those of its subsidiaries. The term 'shareholder' in the Annual Report and Accounts means, unless the context otherwise requires, investors in the equity capital of BP p.l.c., both direct and/or indirect. BP Annual Report and Accounts 2006 and BP Annual Review...

  • Page 4
    ... or joint control over those policies. Barrel 42 US gallons. LNG Liquefied natural gas. London Stock Exchange or LSE London Stock Exchange plc. LPG Liquefied petroleum gas. mb/d thousand barrels per day. mboe/d thousand barrels of oil equivalent per day. mmBtu million British thermal units. mmcf...

  • Page 5
    ... Chairman's letter Group chief executive's review Measuring our progress Performance review Directors, senior management and employees Directors' remuneration report Governance: board performance report Additional information for shareholders Financial statements BP Annual Report and Accounts 2006...

  • Page 6
    ... on BP's business and reputation. The work of each of the committees is described in more detail in the governance: board performance report on pages 36-43 of Notice of BP Annual General Meeting 2007 and also on pages 76-82 of BP Annual Report and Accounts 2006. The safety, ethics and environment...

  • Page 7
    ... director of the General Electric Company, having been chief executive of Amersham plc and subsequently president and chief executive officer of GE Healthcare. Bill is a member of the chairman's, the audit and the safety, ethics and environment assurance committees. I believe that the board...

  • Page 8
    ...a high of $78 per barrel in August before falling back to end the year at about $59 per barrel. The Henry Hub price for gas fell significantly during the year to close at around $5.50 per million British thermal units. Refining margins widened over the summer before narrowing towards normal levels...

  • Page 9
    ... board of external experts to assist and advise BP America Inc. in monitoring the operations of the US businesses, with particular focus on compliance, safety and regulatory affairs. At Texas City itself, a new leadership team has introduced world-class training programmes, increased the number...

  • Page 10
    ... year-end, we have signed a significant gas production-sharing agreement with the Sultanate of Oman. In refining and marketing, we continued to develop strong positions in areas of fast-growing demand, supplying millions of customers every day. Our lowcarbon power business, BP Alternative Energy...

  • Page 11
    Measuring our progress BP Annual Report and Accounts 2006 9

  • Page 12
    ...; (c) the transfer of Hydrogen for Transport activities from Gas, Power and Renewables to Refining and Marketing; and (d) a change to the basis of accounting for certain over-the-counter forward sale and purchase contracts for oil, natural gas, NGLs and power. (See Financial statements - Note...

  • Page 13
    ... Polyethylene Europe and BP Solvay Polyethylene North America. With the exception of the shares issued to Alfa Group and Access-Renova (AAR) in connection with TNK-BP (2004-2006), all capital expenditure and acquisitions during the last five years have been financed from cash flow from operations...

  • Page 14
    ... our licence to operate and our reputation in the marketplace. Failure to meet product quality standards throughout the value chain could lead to harm to people and the environment and loss of customers. Drilling and production Exploration and production require high levels of investment and...

  • Page 15
    ...elds on stream; future levels of industry product supply, demand and pricing; operational problems; general economic conditions; political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; exchange rate ï¬,uctuations; development and use of...

  • Page 16
    ... in the US). The system of internal control is the complete set of management systems, organizational structures, processes, standards and behaviours that are employed to conduct the business of BP and deliver returns to shareholders. The design of the management framework addresses risks and how to...

  • Page 17
    ..., it included proceeds from the sale of various oil and gas properties, the sale of our interest in Singapore Refining Company Private Limited, the sale of our specialty intermediate chemicals and Fabrics and Fibres businesses and the sale of two NGLs plants. BP Annual Report and Accounts 2006 15

  • Page 18
    ...in 26 countries, including the US, the UK, Angola, Azerbaijan, Canada, Egypt, Russia, Trinidad & Tobago (Trinidad) and locations within Asia Pacific, Latin America and the Middle East. Upstream activities involve oil and natural gas exploration and field development and production. Our exploration...

  • Page 19
    ... the group's oil and gas reserves held in equity-accounted companies are reviewed by the group's petroleum engineers before making the assessment of volumes to be booked by BP. Our proved reserves are associated with both concessions (tax and royalty arrangements) and production-sharing agreements...

  • Page 20
    ... but not limited to final regulatory approval, the installation of new or additional infrastructure as well as changes in oil and gas prices and the continued availability of additional development capital. In 2006, net additions to the group's proved reserves (excluding sales and purchases of...

  • Page 21
    ...) - Group - Equity-accounted entities a 13,163 4,537 Net proved reserves of crude oil and natural gas, stated as at 31 December 2006, exclude production royalties due to others, whether payable in cash or in kind, and include minority interests in consolidated operations. We disclose our share of...

  • Page 22
    ...assets in Alberta, Canada and the Kangean PSA in Indonesia. d Volumes relate to six BP-operated fields within ETAP. BP has no interests in the remaining three ETAP fields which are operated by Shell. e Includes 55 thousand net barrels of oil equivalent per day (mboe/d) of NGLs from processing plants...

  • Page 23
    ... day of natural gas received as in-kind tariff payments in 2005 and 2004 respectively. e Natural gas production volumes exclude gas consumed in operations within the lease boundaries of the producing field, but the related reserves are included in the group's reserves. BP Annual Report and Accounts...

  • Page 24
    ... largest area of growth in the US. In 2006, our deepwater Gulf of Mexico crude oil production was 195mb/d and gas production was 323mmcf/d. Significant events were: - Offshore repair work on the Thunder Horse platform (BP 75% and operator) was completed during 2006. However, tests conducted during...

  • Page 25
    ...to 38mb/d in 2006. - Cannonball (BP 100%), Trinidad's first major offshore construction project executed locally, started production in March 2006. Production increased during the year and the asset is currently providing gas for the Atlantic LNG trains. - BP sanctioned the development projects for...

  • Page 26
    ...development of the second liquefied natural gas (LNG) export train at the Damietta site on the Egyptian Mediterranean coast. Asia Pacific Indonesia - BP produces crude oil and supplies natural gas to the island of Java through its holding in the Offshore Northwest Java Production Sharing Agreement...

  • Page 27
    ... between BP (50%) and Alfa Group and Access-Renova (AAR) (50%), is an integrated oil company operating in Russia and the Ukraine. The TNK-BP group's major assets are held in OAO TNK-BP Holding. Other assets include the BP-branded retail sites in Moscow and the Moscow region, OAO Rusia Petroleum and...

  • Page 28
    ... expansion plan. The expansion would require the construction of 10 additional pump stations, additional storage facilities and a third offshore mooring point. Liquefied natural gas Within BP, Exploration and Production is responsible for the supply of LNG and the Gas, Power and Renewables business...

  • Page 29
    ...Marketing business is responsible for the supply and trading, refining, marketing and transportation of crude oil, petroleum and chemicals products to wholesale and retail customers. BP markets its products in more than 100 countries. We operate primarily in Europe and North America but also market...

  • Page 30
    ...process safety and other management and operational behaviours and processes at the Texas City refinery. The investigation team recommended numerous changes relating to people, procedures, control of work and trailer siting, design and engineering, underlying systems and investigation and reporting...

  • Page 31
    ..., coupled with safety accountability roll-out plans. Several other improvements are either complete or under way: - A new office building for more than 400 Texas City workers was opened to relocate workers who can work outside our plant fence line. - A new ï¬,ue gas scrubber is being added to the...

  • Page 32
    ...table outlines by region the volume of crude oil and feedstock processed by BP for its own account and for third parties. Corresponding BP refinery capacity utilization data is summarized. thousand barrels per day Refinery throughputsa 2006 2005 2004 UK 165 180 208 Rest of Europe 648 667 684...

  • Page 33
    ... own networks of a number of service stations and small resellers). d Trading/supply sales are sales to large unbranded resellers and other oil companies. The following table sets out marketing sales by major product group. Our retail network is largely concentrated in Europe and the US, with...

  • Page 34
    ... industrial lubricants and services to manufacturing companies in approximately 40 countries, and the supply of bitumen to the road and roofing industries. The businesses seek to increase value by building from the technology, marketing and sales capabilities of a business to business operation. BP...

  • Page 35
    ... be operational in early 2008 and to increase the site's PTA capacity to 1,426ktepa. Supply and trading The group has a long-established supply and trading activity responsible for delivering value across the overall crude and oil products supply chain. This activity identifies the best markets and...

  • Page 36
    ...trading and risk management activities. Realized and unrealized gains and losses on OTC contracts are included in sales and other operating revenues for accounting purposes. The main grades of crude oil bought and sold forward using standard contracts are West Texas Intermediate and a standard North...

  • Page 37
    ...: - Develop a leading low-carbon power generation business across the value chain. - Access cost competitive supply. - Capture distinctive world-scale gas market positions by accessing key pieces of infrastructure. - Expand gross margin by providing distinctive energy products and services to...

  • Page 38
    .... The group also trades power, in addition to selling and risk managing production from the Texas City co-generation facility in the US. The scale of our gas and power businesses in North America grew over the period 2004-2006 because of a number of factors: (i) increased access to transport rights...

  • Page 39
    ... US West Coast and mid-continent regions. Our North American NGL processing capacity utilization in 2006 was 75%. In addition, we have entered into a long-term supply contract with Aux Sable Liquid Products to secure additional NGLs to supply our customers in the US Midwest. BP operates one plant in...

  • Page 40
    .... During 2006, we continued to advance and employ new technologies in drilling and well construction, unconventional gas development, enhanced oil recovery and seismic imaging. These technologies have enabled discoveries in the deepwater Gulf of Mexico and Angola, increased production from tight gas...

  • Page 41
    ... control - we have a role to play in addressing issues that are relevant to our work, such as climate change and sustainable development. BP's operations Safety During 2006, we took action to address a number of specific safety issues as well as building more comprehensive systems for managing...

  • Page 42
    ... new group standards that set detailed requirements on control of work and integrity management. - Ensuring compliance with applicable laws and regulations. - Rapidly addressing findings from past audits. - Building competence in safety and operations through training and development. During 2006...

  • Page 43
    ... have a positive inï¬,uence on major issues beyond our own operations. The two main areas where we seek to do so are climate change and development. BP and climate change During 2006, we made further investments to increase the supply of lowcarbon energy, both for power and transport. Our activities...

  • Page 44
    ... SK Corporation in South Korea saw operations start at the combined cycle gas turbine power station, the Kwangyang plant, in which BP has a 35% stake, and we have started construction of a new 250MW steam turbine power generating plant at the Texas City refinery site. Looking ahead, we also plan to...

  • Page 45
    ... violations by paying a $0.3 million fine and agreeing, among other things, to upgrade its ï¬,are system. The CSB report is expected to be issued in March 2007. As a result of its investigation of the Texas City refinery, OSHA conducted an inspection of BP Products North America Inc.'s Toledo...

  • Page 46
    ... BP Shipping's managed and time-chartered vessels will participate in STOPIA and TOPIA. At the end of 2006, the international ï¬,eet we managed numbered 47 oil and product carriers, all double-hulled with an average age of less than three years, seven LNG ships with an average age of nine years and...

  • Page 47
    ... and state laws. NRD claims have been asserted by government trustees against a number of group operations. This is a developing area of the law that could affect the cost of addressing environmental conditions at some sites in the future. In the US, many environmental clean-ups are the result of...

  • Page 48
    ...-related existing regulations that may have an impact on BP's operations include: the Major Hazards Directive which, for the sites to which it applies, requires emergency planning, public disclosure of emergency plans and ensuring that hazards are assessed and effective emergency management systems...

  • Page 49
    ... US natural gas prices and global refining margins fell. Crude oil prices reached record highs in 2006 in nominal terms, driven by low surplus oil production capacity, continued demand growth and concern about vulnerability of supply. The dated Brent price averaged $65.14 per barrel, an increase of...

  • Page 50
    ... higher contributions from the operating businesses in the Gas, Power and Renewables segment, offset by the ongoing impact following the Texas City refinery shutdown, lower gas realizations, lower production volumes, higher costs and volatility arising under IFRS fair value accounting. The primary...

  • Page 51
    ... million for the acquisition of Solvay's interests in BP Solvay Polyethylene Europe and BP Solvay Polyethylene North America. Excluding acquisitions and asset exchanges, capital expenditure for 2006 was $16,910 million compared with $13,938 million in 2005 and BP Annual Report and Accounts 2006 49

  • Page 52
    ... and tax for the year ended 31 December 2006 was $29,629 million, including net gains of $2,114 million on the sales of assets (primarily gains from the sales of our interest in the Shenzi discovery in the Gulf of Mexico in the US and interests in the North Sea offset by a loss on the sale of...

  • Page 53
    ... Gulf of Mexico, a charge for impairment of $40 million relating to fields in the UK North Sea and a charge of $265 million on the cancellation of an intra-group gas supply contract. Profit before interest and tax for the year ended 31 December 2004 was $18,085 million, including inventory holding...

  • Page 54
    ... interest and tax for the year ended 31 December 2006 was $5,041 million, including net disposal gains of $884 million (related primarily to the sale of BP's Czech Republic retail business, the disposal of BP's shareholding in Zhenhai Refining and Chemicals Company, the sale of BP's shareholding in...

  • Page 55
    ... related to higher prices and $0.1 billion to lower volumes. Gas marketing sales volumes declined in 2005 and 2006 primarily due to customer portfolio changes and, in 2005, production loss caused by hurricanes in the Gulf of Mexico. Profit before interest and tax for the year ended 31 December 2006...

  • Page 56
    ... existing provisions. These reviews take account of revised cost assumptions, changes in decommissioning requirements and any technological developments. The level of increase in the decommissioning provision varies with the number of new fields coming on stream in a particular year and the outcome...

  • Page 57
    ... group. - The trading environment. We determine the dividend in US dollars, the economic currency of BP. BP intends to continue the operation of the Dividend Reinvestment Plan (DRIP) for shareholders who wish to receive their dividend in the form of shares rather than cash. The BP Direct Access Plan...

  • Page 58
    ... to secure long-term access to supplies of crude oil, natural gas, feedstocks and pipeline systems. In addition, the amounts shown for 2007 include purchase commitments existing at 31 December 2006 entered into principally to meet the group's short-term manufacturing and marketing requirements...

  • Page 59
    ... asset carrying values, deferred taxation, provisions and contingencies, and pensions and other post-retirement benefits. Oil and natural gas accounting The group follows the successful efforts method of accounting for its oil and natural gas exploration and production activities. BP Annual Report...

  • Page 60
    ... reported in the financial statements. The 2006 movements in proved reserves are reï¬,ected in the tables showing movements in oil and gas reserves by region in Financial statements - Supplementary information on oil and natural gas on pages 196-197. Recoverability of asset carrying values BP...

  • Page 61
    ...significant effect on the group's tax rate in future years. Provisions and contingencies The group holds provisions for the future decommissioning of oil and natural gas production facilities and pipelines at the end of their economic lives. The largest asset removal obligations facing BP relate to...

  • Page 62
    ... BP, together with all other EU companies listed on an EU stock exchange, was required to prepare consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU with effect from 1 January 2005. The Annual Report and Accounts for the year...

  • Page 63
    ... business activities. Market risk is the possibility that changes in foreign currency exchange rates, interest rates, or oil and natural gas or power prices will adversely affect the value of the group's financial assets, liabilities or expected future cash ï¬,ows. The group has developed policies...

  • Page 64
    ... (forwards) and pricing models that take into account relevant market data (options). These derivative contracts constitute a hedge; changes in the fair value or expected cash ï¬,ows are offset by an opposite change in the market value or expected cash ï¬,ows of the asset, liability or transaction...

  • Page 65
    ... euro/pay US dollars 207 - - - - - 207 0 Contract amount Weighted average strike price 1.42 Weighted average contractual exchange rates are expressed as US dollars per non-US dollar currency unit. Beyond Fair value asset/ liability Interest rate risk BP is exposed to interest rate risk on short...

  • Page 66
    ... in Financial statements - Note 36 on page 141. The group's operational, risk management and trading activities in oil, natural gas, power and financial markets are managed within a single integrated function. The group's risk management policy requires the management of only certain short-term...

  • Page 67
    ... is a non-executive director of Corus Group plc. Dr D C Allen David Allen (52) joined BP in 1978 and subsequently undertook a number of corporate and exploration and production roles in London and New York. He moved to BP's corporate planning function in 1986, becoming group vice president in 1999...

  • Page 68
    ... BP in 1987 following the acquisition of The Standard Oil Company of Ohio, where he had worked since 1979. He became group treasurer in 1992 and in 1994 regional chief executive in Latin America. In 1999, he was appointed an executive vice president of exploration and production, and chief executive...

  • Page 69
    ... businesses and corporate 4,000 5,000 4,000 500 13,500 17,500 25,900 36,900 22,600 102,900 Employee numbers decreased in 2005 compared with 2004, primarily due to the sale of Innovene. The company seeks to maintain constructive relationships with labour unions. BP Annual Report and Accounts 2006...

  • Page 70
    ... by the company secretary. The report is subject to the approval of shareholders at the annual general meeting (AGM). Contents Part 1 Executive directors' remuneration Letter to shareholders 2006 remuneration Remuneration policy Salary Annual bonus Long-term incentives Pensions Service contracts...

  • Page 71
    ... on average capital employed (ROACE) and safety, environment and production targets. Strategic milestones, including those relating to technology, operations and business development, accounted for 30%. Individual performance, including both leadership objectives and living the values of the group...

  • Page 72
    ... leadership objectives and against living the values of the group (incorporating BP's code of conduct). The remuneration committee will also review carefully the underlying performance of the group in the light of the five-year business plan and will look at competitors' results, analysts' reports...

  • Page 73
    ... next directors' remuneration report following the vesting, in line with its commitment to transparency. Group chief executive As noted above, as group chief executive, Lord Browne is eligible for performance share awards of up to 7.5 times his base salary. While the largest part of this is related...

  • Page 74
    ... business expenses. No share or share option awards are made to any non-executive director in respect of service on the board. The fees were reviewed in 2005 by an ad hoc board committee and were increased with effect from 1 January 2005 to reï¬,ect the change in workload and global market rates...

  • Page 75
    ... remunerating senior executives who are not executive directors. Constitution and operation Historical TSR performance a This graph shows the growth in value of a hypothetical £100 holding in BP p.l.c. ordinary shares over five years, relative to the FTSE 100 and to the FTSE All World Oil & Gas...

  • Page 76
    .... during the year includes an inflation increase of 2.2% for UK directors and 3.3% for US directors. Transfer values have been calculated in accordance with version 8.1 of guidance note GN11 issued by the actuarial profession. Group chief executive As stated in previous years' reports, Lord Browne...

  • Page 77
    ... has been subject to audit. Numbers shown are ADSs under option. One ADS is equivalent to six ordinary shares. This directors' remuneration report was approved by the board and signed on its behalf by David J Jackson, company secretary, on 23 February 2007. BP Annual Report and Accounts 2006 75

  • Page 78
    ...the year, the chairman has regular meetings with institutional shareholders to discuss issues of governance and high-level strategy. Shareholder dialogue is also undertaken by the group chief executive and other directors, the company secretary's office, investor relations and other teams within BP...

  • Page 79
    ...capital markets in which the group operates and an appreciation of the health, safety and environmental and sustainability issues the group faces. Our executive directors bring a further perspective to the work of the board through their deep comprehension of the company's business. Board directors...

  • Page 80
    ...information about the group. The chairman is accountable for the induction of new board members and is assisted by the company secretary's office in this role. Training On appointment, our directors are advised of the legal and other duties and obligations they have as directors of a listed company...

  • Page 81
    ...nancial processes of the group and the integrity of its reports and accounts. On behalf of the board, it monitors observance of the executive limitations policy relating to financial matters. The committee reviews the management of financial risks and the internal controls designed to address them...

  • Page 82
    ... time in private session at the end of each meeting and to hold a joint meeting with the safety, ethics and environment assurance committee each year to review the general auditor's internal controls and risk management report. These adjustments were incorporated in the forward agenda and work plan...

  • Page 83
    ...The BP general auditor presented reports to a joint meeting of the committees in January 2007 to support the board in its annual assessment of internal control. The reports described how significant risks were identified and embedded within business segment and function plans across the group; the...

  • Page 84
    ... in such shares of the company held from time to time by the BP Employee Share Ownership Plan (No. 2) to facilitate the operation of the company's option schemes. No director has any interest in the preference shares or debentures of the company, or in the shares or loan stock of any subsidiary...

  • Page 85
    ... in Financial statements - Note 44 on page 163. BP offers most of its employees the opportunity to acquire a shareholding in the company through savings-related and/or matching share plan arrangements. BP also uses long-term performance plans (see Financial BP Annual Report and Accounts 2006 83

  • Page 86
    .... Options outstanding (shares) Expiry dates of options Exercise price per share 422,119,465 2007-2016 $5.0967-$11.921 Major shareholders and related party transactions Register of members holding BP ordinary shares as at 31 December 2006 Range of holdings Number of shareholders...

  • Page 87
    ..., BP believes that the impact of these lawsuits on the group's results of operations, financial position or liquidity will not be material. For certain information regarding environmental proceedings, see Environmental protection - US regional review on page 45. BP Annual Report and Accounts 2006...

  • Page 88
    ...These are derived from the Daily Official List of the LSE and the highest and lowest sales prices of ADSs as reported on the New York Stock Exchange composite tape. Pence Dollars Ordinary shares American depositary sharesa Low High Low High Year ended 31 December 625.00 387.00 53...

  • Page 89
    Market prices for the ordinary shares on the LSE and in after-hours trading off the LSE, in each case while the New York Stock Exchange is open, and the market prices for ADSs on the New York Stock Exchange and other North American stock exchanges are closely related due to arbitrage among the ...

  • Page 90
    ...foreign exchange controls or restrictions on remittances of dividends on the ordinary shares or on the conduct of the company's operations. There are no limitations, either under the laws of the UK or under BP's Articles of Association, restricting the right of non-resident or foreign owners to hold...

  • Page 91
    ... the value of the ordinary shares at the time of the transfer. A transfer of the underlying ordinary shares to an ADR holder on cancellation of the ADSs without transfer of beneficial ownership will give rise to UK stamp duty at the rate of £5 per transfer. BP Annual Report and Accounts 2006 89

  • Page 92
    ...publications are listed on the inside back cover. Purchases of equity securities by the issuer and affiliated purchasers The following table provides details of ordinary shares repurchased. $ Total number of shares ac purchased Average price paid per share Total number of shares purchased...

  • Page 93
    ... Notice of BP Annual General Meeting 2007. By order of the board David J Jackson Secretary 23 February 2007 Administration If you have any queries about the administration of shareholdings, such as change of address, change of ownership, dividend payments, the dividend reinvestment plan or the ADS...

  • Page 94
    This page is intentionally left blank. 92

  • Page 95
    ... 173 48 Capital commitments 49 First-time adoption of International Financial Reporting Standards 50 Subsidiaries, jointly controlled entities and associates 51 Oil and natural gas exploration and production activities Additional information for US reporting 52 Suspended exploration well costs 53...

  • Page 96
    ...applicable UK law and those International Financial Reporting Standards (IFRS) adopted by the EU. The directors are required to prepare financial statements for each financial year which present fairly the financial position of the group and the financial performance and cash ï¬,ows of the group...

  • Page 97
    ...51. These consolidated financial statements have been prepared under the accounting policies set out therein. We have reported separately on the parent company financial statements of BP p.l.c. for the year ended 31 December 2006 and on the information in the Directors' Remuneration Report that is...

  • Page 98
    Group income statement For the year ended 31 December $ million Note 2006 2005 2004 Sales and other operating revenues 7 265,906 239,792 192,024 Earnings from jointly controlled entities - after interest and tax 8 3,553 3,083 1,818 Earnings from associates - after interest and tax 8 442 460 ...

  • Page 99
    ... Net assets 85,465 80,765 Equity 42 5,385 5,185 Share capital Reserves 79,239 74,791 BP shareholders' equity 43 84,624 79,976 Minority interest 43 841 789 Total equity 43 85,465 80,765 Peter Sutherland Chairman The Lord Browne of Madingley Group Chief Executive BP Annual Report and Accounts 2006...

  • Page 100
    ...204) Net increase (decrease) in short-term debt 3,873 (1,457) (24) Dividends paid 24 (7,686) (7,359) (6,041) BP shareholders Minority interest (283) (827) (33 Net cash used in financing activities (19,071) (23,303) (12,835 Currency translation differences relating to cash and cash equivalents 47...

  • Page 101
    ...expense For the year ended 31 December $ million Note 2006 2005 2004 Currency translation differences 2,025 (2,502) 2,283 Exchange gain on translation of foreign operations transferred to gain or loss on sale of businesses - (315) (78) and fixed assets Actuarial gain relating to pensions and...

  • Page 102
    ...1 Significant accounting policies Authorization of financial statements and statement of compliance with International Financial Reporting Standards The consolidated financial statements of the BP group for the year ended 31 December 2006 were authorized for issue by the board of directors on 23...

  • Page 103
    ... dollar operation is recognized in the income statement. Business combinations and goodwill Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition is measured as the cash paid and the fair value of other assets given, equity instruments issued...

  • Page 104
    ... purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. The capitalized value of a finance lease is also included within property, plant and equipment. Exchanges of assets are measured at the fair value of the asset...

  • Page 105
    ...nancial assets not at fair value through profit or loss, directly attributable transaction costs. As explained in Note 49, the group has not restated comparative amounts on first applying IAS 32 and IAS 39, as permitted in IFRS 1 'First-time Adoption of International Financial Reporting Standards...

  • Page 106
    ... short-term highly liquid investments that are readily convertible to known amounts of cash, are subject to insignificant risk of changes in value and have a maturity of three months or less from the date of acquisition. For the purpose of the group cash ï¬,ow statement, cash and cash equivalents...

  • Page 107
    ... statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement. BP Annual Report and Accounts 2006 105

  • Page 108
    ... the present value of the defined benefit obligation (using a discount rate based on high quality corporate bonds), less the fair value of plan assets out of which the obligations are to be settled directly. Fair value is based on market price information and, in the case of quoted securities, is...

  • Page 109
    ... policies continued Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts, customs duties and sales taxes. Revenues associated with the sale of oil, natural gas...

  • Page 110
    ...The directors do not anticipate that the adoption of these interpretations will have a material effect on the reported income or net assets of the group. IFRIC 12 'Service Concession Arrangements' gives guidance on the accounting by operators for public-to-private service concession arrangements. BP...

  • Page 111
    ...and tax Exploration and Production Refining and Marketing Gas, Power and Renewables Other Consolidation businesses adjustment and and corporate eliminations Total group Consolidation adjustment Innovene and operations eliminations Total continuing operations BP Annual Report and Accounts...

  • Page 112
    ... party sales of continuing operations 33,141 42,566 78,646 37,671 192,024 Rest of Europe Rest of World $ million Purchases 2005 2004 As reported 172,699 135,907 As restated 163,026 128,055 3 Oil and natural gas reserves estimates At the end of 2006, BP adopted the US Securities and Exchange...

  • Page 113
    ... disposal group, subject to required regulatory approval, to Petroplus Holdings AG, an independent refiner and wholesaler of petroleum products headquartered in Zug, Switzerland, for a sale price of $1.4 billion, plus hydrocarbons to be valued at closing. BP Annual Report and Accounts 2006 111

  • Page 114
    ... was a final closing adjustment of $34 million. The remeasurement to fair value less costs to sell resulted in a loss of $775 million before tax ($184 million recognized in 2006 and $591 million in 2005). Financial information for the Innovene operations after group eliminations is presented below...

  • Page 115
    ... structure and the group's internal financial reporting systems. BP has three reportable operating segments: Exploration and Production; Refining and Marketing; and Gas, Power and Renewables. Exploration and Production's activities include oil and natural gas exploration and field development...

  • Page 116
    ... on sale of businesses and fixed 2,309 1,112 193 100 - 3,714 - - 3,714 assets Exploration and Production Refining and Marketing Gas, Power and Renewables Other businessess and corporate Consolidation adjustment and eliminations Total group Consolidation adjustment Innovene and a operations...

  • Page 117
    ... Exploration and Production Refining and Marketing Gas, Power and Renewables Other businesses and corporate Consolidation adjustment and eliminations Total group Consolidation adjustment Innovene and a operations eliminations Total continuing operations BP Annual Report and Accounts 2006...

  • Page 118
    ... on sale of businesses and fixed assets 162 104 56 1,365 - 1,687 (2) - 1,685 a Exploration and Production Refining and Marketing Gas, Power and Renewables Other businesses and corporate Consolidation adjustment and eliminations Total group Consolidation adjustment Innovene and a operations...

  • Page 119
    ...disposal of Innovene operations 185 36 (16) (21) - 184 Losses on sale of businesses and fixed assets 12 96 217 103 - 428 Gains on sale of businesses and fixed assets 337 577 2,530 270 - 3,714 Rest of Consolidation adjustment Rest of and World eliminations BP Annual Report and Accounts 2006 117

  • Page 120
    ...359 Loss on remeasurement to fair value less costs to sell and on disposal of 24 273 262 32 - 591 Innovene operations Losses on sale of businesses and fixed assets - 37 8 64 - 109 Gains on sale of businesses and fixed assets 107 1,017 282 132 - 1,538 Rest of Rest of Consolidation adjustment and...

  • Page 121
    ... expense 26 25 361 225 637 Impairment losses - - 570 41 611 Impairment reversals - - - 31 31 Losses on sale of businesses and fixed assets 282 - 177 320 779 Gains on sale of businesses and fixed assets - - 133 1,552 1,685 Rest of Europe Rest of World BP Annual Report and Accounts 2006 119

  • Page 122
    ... on the disposal of fixed assets. $ million 2004 By business Interest Tax interest for the year Exploration and Production 3,244 189 1,029 43 1,983 Refining and Marketing 360 19 79 - 262 Gas, Power and Renewables 44 7 2 - 35 Other businesses and corporate (9) 3 - - (12 3,639 218 1,110...

  • Page 123
    ... each business segment are described below. Exploration and Production The group divested interests in a number of oil and natural gas properties in all three years. The major divestments during 2006 that resulted in gains were the sales of our interest in the Shenzi discovery in the Gulf of Mexico...

  • Page 124
    ... depletion and amortization $ million By business 2006 2005 2004 Exploration and Production 1,720 1,663 1,642 UK Rest of Europe 223 228 184 USA 2,236 2,426 2,407 Rest of World 2,354 1,716 1,350 6,533 6,033 5,583 Refining and Marketing 303 316 318 UKa Rest of Europe 603 687 645 USA 1,048...

  • Page 125
    ... at Hull, UK. Gas, Power and Renewables The impairment charge for 2006 relates to certain North American pipeline assets. The trigger for impairment testing was the reduction in future pipeline tariff revenues and increased on-going operational costs. BP Annual Report and Accounts 2006 123

  • Page 126
    ... business segment are described below. Exploration and Production The group divested interests in a number of oil and natural gas properties in all three years. For 2006, the largest component of the loss is attributed to the sale of properties in the Gulf of Mexico Shelf which includes increases...

  • Page 127
    ... agreed by BP's management for the purpose. Cash outï¬,ows and hydrocarbon production quantities for the first five years are agreed as part of the annual planning process. Thereafter, estimated production quantities and cash outï¬,ows up to the date of cessation of production are developed to be...

  • Page 128
    ... assumptions decline on average by 5% a year over the plan period and marketing volume assumptions grow by an average of 5% a year over the plan period. The value assigned to the terminal value assumption is 6.5 times earnings (2005 6.5 times), which is indicative of similar assets in the current...

  • Page 129
    ...of the cost may be capitalized as part of the capital cost of the project. For 2006, $895 million of the cost for the year has been capitalized. Where BP is not the operator of a jointly controlled asset, operating lease costs and minimum future lease payments are excluded from the information given...

  • Page 130
    ...7 All other services 9 23 9 Audit fees in respect of the BP pension plans - 1 1 73 96 81 Innovene operations - (9) (3 Continuing operations 73 87 78 a Fees in respect of the audit of the accounts of BP p.l.c. including the group's consolidated financial statements. Total fees for 2006 include...

  • Page 131
    ... has established pre-approval policies and procedures for the engagement of Ernst & Young to render audit and certain assurance and tax services. The audit fees payable to Ernst & Young are reviewed by the audit committee in the context of other global companies for cost-effectiveness. Ernst & Young...

  • Page 132
    ... of prior years - (95 Tax included in statement of recognized income and expense 985 934 214 259 50 73 This comprises Currency translation differences 201 (11) 208 Exchange gain on translation of foreign operations transferred to loss on sale of businesses - (95) - Actuarial gain relating to...

  • Page 133
    ...to changes in enacted tax rates and the country mix of the group's income. The current high oil price environment continues to create conditions that encourage host governments to review their fiscal regimes. In 2006 the UK supplementary charge was raised to 20% increasing the group's effective tax...

  • Page 134
    ...1,999 7,359 - 6,041 - Dividend announced per ordinary share, payable in March 2007 5.258 The group does not account for dividends until they have been paid. The accounts for the year ended 31 December 2006 do not reï¬,ect the dividend announced on 6 February 2007 and payable in March 2007; this...

  • Page 135
    ... exercise of employee share options was 111,029,592 at 31 December 2006. There has been a decrease of 25,627,050 in the number of potential ordinary shares between the reporting date and the completion of the financial statements. Earnings (loss) per share for the discontinued operations is derived...

  • Page 136
    ...Oil and gas properties Plant, machinery and equipment Fixtures, fittings and office equipment Transportation Oil depots, storage tanks and service stations Total Of which: assets under construction Cost 4,576 2,835 113,474 28,780 2,247 13,266 11,235 176,413 16,115 At 1 January 2006 Exchange...

  • Page 137
    ...) (86) (274 At 31 December 480 992 1,472 653 976 1,629 Net book amount at 31 December 4,110 1,136 5,246 4,008 764 4,772 a Included in transfers of exploration expenditure is $240 million transferred to equity-accounted investments. BP Annual Report and Accounts 2006 135

  • Page 138
    ... and Shaoxing. Also during 2004, BP China and PetroChina announced the establishment of BP-PetroChina Petroleum Company Ltd. Located in Guangdong, one of the most developed provinces in China, the joint venture will acquire, build, operate and manage 500 service stations in the province. The initial...

  • Page 139
    ... at 31 December Purchases Amount payable at 31 December Purchases Amount payable at 31 December Atlantic LNG 2/3 Company of Trinidad and Tobago Pan American Energy Ruhr Oel TNK-BP Plant processing fee/ natural gas Crude oil Refinery operating costs Crude oil and oil products 254 4 758 2,662...

  • Page 140
    ... stated at cost. $ million 2006 2005 At cost 1,056 250 Listed Unlisted 219 173 1,275 423 During 2006, the group sold its interests in Zhenhai Refining and Chemicals Company, Eiffage, the French-based construction company, and Enagas, the Spanish gas transport grid operator, for aggregate...

  • Page 141
    ...-for-sale financial assets and as such are recorded at fair value. Cash and cash equivalents at 31 December 2006 includes $773 million which is restricted. This relates principally to amounts on deposit to cover trading positions on trading exchanges. BP Annual Report and Accounts 2006 139

  • Page 142
    35 Trade and other payables $ million 2006 2005 Current Non-current Current Non-current Trade 28,319 - 28,614 - Jointly controlled entities 87 - 251 - Associates 305 - 627 - Production and similar taxes 852 899 763 1,281 Social security 59 - 78 - Other 12,614 531 11,803 654 42,236 1,430 ...

  • Page 143
    ... a range of contract types in combination to create incremental gains by arbitraging prices between markets, locations and time periods. The net of these exposures is monitored using market value-at-risk techniques described in the section on market risk exposure. BP Annual Report and Accounts 2006...

  • Page 144
    ... shows the change in the associated fair value of assets and liabilities. $ million 2006 2005 Natural gas price Power price Natural gas price Power price Fair value of contracts not recognized through the income statement at 1 January (39) (10) (15) - Fair value of new contracts at...

  • Page 145
    ...years 2-3 years 3-4 years 4-5 years Over 5 years Currency derivatives Fair value Notional value Oil price derivatives Fair value Notional value Natural gas price derivatives Fair value Notional value Power price derivatives Fair value Notional value Total derivative assets held for trading Fair...

  • Page 146
    ... for the held-for-trading activities described above. $ million Value at risk on 1.65 standard deviations 2006 2005 High Low Average Year end High Low Average Year end Interest rate trading Currency trading Oil price trading Natural gas price trading Power price trading 1 5 56 29 11...

  • Page 147
    ... or notional values and maturities. $ million 2006 Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years Total Natural gas and LNG embedded derivatives Fair value Notional value 49 119 58 100 - - - - - - - - 107 219 BP Annual Report and Accounts 2006 145

  • Page 148
    ... and by methodology of fair value estimation. $ million 2006 Less than 1 year 1-2 years 2-3 years 3-4 years 4-5 years Over 5 years Total Prices actively quoted Prices sourced from observable data or market corroboration 49 58 - - - - 107 Prices based on models and other valuation...

  • Page 149
    ...be highly effective. At 31 December 2006, the hedge had a fair value of $107 million (2005 $63 million) and the gain on the hedge recognized in equity was $105 million (2005 $58 million). US dollars have been sold forward for sterling purchased, with a maturity of 2 to 3 years. BP Annual Report and...

  • Page 150
    ... other Financial Instruments: Disclosures'). The group uses derivative financial instruments (derivatives) to manage certain exposures to ï¬,uctuations in foreign currency exchange rates and interest rates and to manage some of its margin exposure from changes in oil, natural gas and power prices...

  • Page 151
    ... shows values at risk for trading activities. $ million 2004 High Low Average Year end Interest rate trading Foreign exchange trading Oil price trading Natural gas price trading Power price trading 1 4 55 23 10 - 1 18 6 1 - 1 29 13 4 - 1 45 10 4 The presentation of trading results...

  • Page 152
    ... currencies are based on local market equivalents. The group monitors interest rate risk using a process of sensitivity analysis. Assuming no changes to the finance debt and related hedge balances, it is estimated that a change of 1% in the general level of interest rates on 1 January 2007 would...

  • Page 153
    ... would be reported under current liabilities. Long-term borrowings also include US Industrial Revenue/Municipal Bonds and loans associated with long-term gas supply contracts classified on the balance sheet as current liabilities. The carrying value of the group's short-term borrowings, comprising...

  • Page 154
    ...value of funds arising from contributions paid in respect of each employee. For defined benefit plans, retirement benefits are based on such factors as the employees' pensionable salary and length of service. Defined benefit plans may be externally funded or unfunded. The assets of funded plans...

  • Page 155
    ... company or of any subsidiary. Return on asset assumptions reï¬,ect the group's expectations built up by asset class and by plan. The group's expectation is derived from a combination of historical returns over the long term and the forecasts of market professionals. BP Annual Report and Accounts...

  • Page 156
    ...120 5.75 130 5.25 114 Cash 3.0 191 1.50 216 3.50 288 5.8 2,668 5.50 2,280 6.00 2,192 The assumed rate of investment return and discount rate have a significant effect on the amounts reported. A one-percentage-point change in these assumptions for the group's plans would have had the following...

  • Page 157
    ... 8,149 42,433 Movements in fair value of plan assets during the year Fair value of plan assets at 1 January 23,282 7,317 28 2,280 32,907 Exchange adjustments 3,325 - - 122 3,447 c Expected return on plan assets 1,711 564 2 133 2,410 Contributions by plan participants 38 - - 5 43 Contributions by...

  • Page 158
    ...obligation at 31 December 20,063 7,900 3,478 7,414 38,855 Movements in fair value of plan assets during the year Fair value of plan assets at 1 January 22,307 7,183 30 2,192 31,712 Exchange adjustments (2,469) - - (195) (2,664) Expected return on plan assetsb 1,456 557 2 123 2,138 Contributions by...

  • Page 159
    ... 14 12 17 Continuing operations 364 78 (224) (230) (12) Analysis of the amount recognized in the statement of recognized income and expense Actual return less expected return on pension plan assets 818 379 - 152 1,349 Change in assumptions underlying the present value of the plan liabilities (795...

  • Page 160
    ...(i) 10% of the capital paid up on the preference shares and (ii) the excess of the average market price of such shares on the London Stock Exchange during the previous six months over par value. Repurchase of ordinary share capital The company purchased 1,334,362,750 ordinary shares (2005 1,059,706...

  • Page 161
    This page is intentionally left blank. BP Annual Report and Accounts 2006 159

  • Page 162
    ...translation of foreign operations - - - - transferred to (profit) or loss on sale (net of tax) Actuarial gain relating to pensions and other post-retirement benefits (net of tax) - - - - Issue of ordinary share capital for TNK-BP 27 1,223 - - Available-for-sale investments marked to market (net of...

  • Page 163
    ...Own shares Treasury shares Foreign currency translation reserve Availablefor-sale investments Cash ï¬,ow hedges Sharebased payment reserve Profit and loss account BP shareholders' ...041) (33) (6,074 44 (82) - 5,616 - - 443 31,940 76,892 1,343 78,235 BP Annual Report and Accounts 2006 161

  • Page 164
    ... reserve represents the fair value of the consideration given in excess of the nominal value of the ordinary shares to be issued in the ARCO acquisition on the exercise of ARCO share options. Own shares Own shares represent BP shares held in Employee Share Ownership Plans (ESOPs) to meet the future...

  • Page 165
    ...-settled incentive share plan for executive directors driven by three performance measures over a three-year performance period. The primary measure is BP's shareholder return against the market (SHRAM) versus that of the companies within the FTSE All World Oil & Gas Index. This accounts for nearly...

  • Page 166
    ... that require the group to pay the intrinsic value of the cash option/SAR to the employee at the date of exercise. There are no performance conditions; however, participants must continue in employment with BP for the first three calendar years of the plan for the options/SARs to vest. Special...

  • Page 167
    ... within which the grant date of the relevant plan falls. This estimate takes into account the volatility implied by options in the market. Shares granted in 2006 TSR FCF TSR LTL RSP Number of equity instruments granted (million) 8.7 7.8 3.3 0.5 0.5 Weighted average fair value $7.28 $11.23 $4.87...

  • Page 168
    ... fair value the TSR element of the 2006 and 2005 MTPP and EDIP plans. In accordance with the rules of the plans the model simulates BP's TSR and compares it against our principal strategic competitors over the three-year period of the plans. The model takes into account the historic dividends, share...

  • Page 169
    ... who attend the Group Chief Executive's Meeting. Short-term employee benefits In addition to fees paid to the non-executive chairman and non-executive directors, these amounts comprise, for executive directors and senior managers, salary and benefits earned during the year, plus bonuses awarded...

  • Page 170
    ... statements in accordance with UK generally accepted accounting practice (UK GAAP). BP, together with all other European Union (EU) companies listed on an EU stock exchange, was required to prepare consolidated financial statements in accordance with International Financial Reporting Standards...

  • Page 171
    ... derivative financial instruments on the group balance sheet as this is believed to be the most appropriate presentation. Previously, these balances were reported within non-current and current prepayments and accrued income and accruals and deferred income. BP Annual Report and Accounts 2006 169

  • Page 172
    ... trading purposes were marked to market under UK GAAP. However, under IFRS they could no longer be recorded at fair value as they did not meet the definition of financial assets or financial liabilities. These contracts are accounted for on an accruals basis. Available-for-sale financial assets...

  • Page 173
    .... BP Products North America BP West Coast Products Standard Oil Co. BP Capital Markets America Australia BP Oil Australia BP Australia Capital Markets BP Developments Australia BP Finance Australia Azerbaijan Amoco Caspian Sea Petroleum BP Exploration (Caspian Sea) Canada BP Canada Energy BP Canada...

  • Page 174
    ... Germany China British Virgin Islands LNG manufacture LNG manufacture Exploration and production, pipelines Exploration and production Refining and marketing and petrochemicals Petrochemicals Integrated oil operations Pan American Energy is not controlled by BP, as certain key business decisions...

  • Page 175
    ..., which are capitalized within intangible fixed assets, and geological and geophysical exploration costs, which are charged to income as incurred. c Sales and other operating revenues represents proceeds from the sale of production and other crude oil and gas, including royalty oil sold on behalf of...

  • Page 176
    ..., which are capitalized within intangible fixed assets, and geological and geophysical exploration costs, which are charged to income as incurred. c Sales and other operating revenues represents proceeds from the sale of production and other crude oil and gas, including royalty oil sold on behalf of...

  • Page 177
    ..., which are capitalized within intangible fixed assets, and geological and geophysical exploration costs,which are charged to income as incurred. c Sales and other operating revenues represents proceeds from the sale of production and other crude oil and gas, including royalty oil sold on behalf of...

  • Page 178
    ...the discovery is economically viable, based on a range of technical and commercial considerations, and sufficient progress is being made on establishing development plans and timing. The following table provides the year-end balances and movements for suspended exploration well costs. $ million...

  • Page 179
    ... completed; assessment of economic aspects of project in progress; development options identified and under evaluation; planned subsea tieback to existing production facilities and LNG train; inter-governmental discussions on unitization continue. 140 5 BP Annual Report and Accounts 2006 177

  • Page 180
    52 Suspended exploration well costs continued Country Project Cost $ million 2006 Years wells wells gross drilled Anticipated year of development project sanction Comment UK Andrew 14 1 1998 2007 Devenick 90 3 1983-2001 2007 Puffin 29 9 1982-1991 2008-2010 Suilven 20 3 ...

  • Page 181
    ... 573.72 461.28 Cumulative effect of accounting change - (22.26 627.78 551.46 461.28 BP's financial statements for the year ended 31 December 2005 were authorized for issue on 6 February 2006 and were included in the 2005 Annual Report and Accounts. BP filed its 2005 Annual Report on Form 20-F on 30...

  • Page 182
    ... 84,624 79,976 Texas City provision timing differencea - (315 BP shareholders' equity as reported in the Annual Report on Form 20-F to accord with IFRS 84,624 79,661 Adjustments 1,801 2,025 Deferred taxation/business combinations (a) Provisions (b) 63 (112) Oil and natural gas reserves differences...

  • Page 183
    ... of International Financial Reporting Standards', business combinations prior to the group's date of transition to IFRS were not restated in accordance with IFRS 3 and the offset was taken as an adjustment to shareholders' equity at the date of transition to IFRS. Under US GAAP, deferred tax assets...

  • Page 184
    ... net book values of the underlying oil and natural gas properties. The adjustments to profit for the year and to BP shareholders' equity to accord with US GAAP are summarized below. Increase (decrease) in caption heading $ million 2006 2005 2004 Gain on sale of businesses and fixed assets...

  • Page 185
    ... exchange rates and a difference in the amount of goodwill allocated to the Gulf of Mexico Shelf assets sold. During the fourth quarter of 2006 the group completed a goodwill impairment review using the two-step process prescribed in US GAAP. The first step includes a comparison of the fair value...

  • Page 186
    .... Increase (decrease) in caption heading $ million 2006 2005 2004 Production and manufacturing expenses Finance costs Taxation Profit for the year (169) (17) 44 142 - (15) (72) 87 481 - (144) (337) $ million 2006 2005 Goodwill Finance debt Deferred tax liabilities BP shareholders...

  • Page 187
    ... 2005 exchanges of non-monetary assets are generally accounted for at fair value under both IFRS and US GAAP. The adjustments to profit for the year and to BP shareholders' equity to accord with US GAAP are summarized below. Increase (decrease) in caption heading $ million 2006 2005 2004...

  • Page 188
    ... pension and other post-retirement benefits expense 2006 2005 2004 Defined benefit plans 829 785 757 Service cost - benefits earned during year Interest cost on projected benefit obligation 1,940 2,022 2,012 Expected return on plan assets (2,140) (2,115) (2,161) Amortization of transition...

  • Page 189
    ...sale of businesses and fixed assets Taxation Profit for the year (208) 6 340 (222) (332) - 28 477 (127) (378) - - (986) 309 677 $ million 2006 2005 Property, plant and equipment Deferred tax liabilities BP shareholders' equity (40) (42) 2 504 177 327 BP Annual Report and Accounts 2006...

  • Page 190
    ...loss as a result of the group's involvement with these entities is limited to the debt of the entity, less the fair value of the ships at the end of the lease term. During 2006, a number of the existing leasing arrangements that were being consolidated for US GAAP reporting were modified. Under the...

  • Page 191
    ... on their grant date fair value (with limited exceptions) and recognized over the related service period. For periods prior to 1 January 2005, the group accounted for share-based payments under Accounting Principles Board Opinion No. 25 using the intrinsic value method. With effect from 1 January...

  • Page 192
    ...'s operating and financial policies after disposal. In connection with the sale of Innovene the group has a number of commercial arrangements with Innovene for the supply of refining and petrochemical feedstocks, and the purchase and sale of refined products. Because of continuing direct cash...

  • Page 193
    ...For the group, energy trading contracts in oil, natural gas, NGLs and power comprise exchange-traded derivative instruments such as futures and options and non-exchange-traded instruments such as swaps, 'over-the-counter' options and forward contracts. The following tables show the net fair value of...

  • Page 194
    ... exposure to market risk. The value-at-risk models take account of derivative financial instruments such as oil, natural gas and power price futures and swap agreements. Financial assets and liabilities and physical crude oil and refined products that are treated as held for trading positions are...

  • Page 195
    ...arrangement or separate contractual arrangements and the inventory purchased or sold may be in the form of raw material, work-in-process or finished goods. At issue is whether the revenue, inventory cost and cost of sales should be recorded at fair value or whether the transactions should be classi...

  • Page 196
    ... the group's profit as adjusted to accord with US GAAP, or on BP shareholders' equity as adjusted to accord with US GAAP. Fair value option In February 2007, the FASB issued SFAS No. 159 'The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB Statement...

  • Page 197
    ... from the assets to which they apply. 57 Computation of ratio of earnings to fixed charges $ million, except ratios For the year ended 31 December 2006 2005 2004 Profit before taxation 34,642 31,921 24,966 Group's share of income in excess of dividends from equity-accounted entities - (710...

  • Page 198
    ... of BP's governance process for the booking of oil and natural gas reserves, see page 17. 2006 million barrels Crude oila UK Rest of Europe USA Rest of Americas Asia Pacific Africa Russia Other Total Subsidiaries At 1 January 2006 496 225 1,984 215 70 142 - 69 3,201 Developed...

  • Page 199
    ... meet regulatory requirements for sales. c Includes 3,537 billion cubic feet of natural gas in respect of the 30% minority interest in BP Trinidad and Tobago LLC. d Includes 99 billion cubic feet of natural gas in respect of the 7.77% minority interest in TNK-BP. BP Annual Report and Accounts 2006...

  • Page 200
    ... information on oil and natural gas continued 2005 Movements in estimated net proved reserves a Crude oil million barrels UK Rest of Europe USA Rest of Americas Asia Pacific Africa Russia Other Total Subsidiaries At 1 January 2005 559 231 2,041 311 65 204 - 62 3,473 Developed...

  • Page 201
    ... on oil and natural gas continued 2005 Movements in estimated net proved reserves a Natural gas billion cubic feet UK Rest of Europe USA Rest of Americas Asia Pacific Africa Russia Other Total Subsidiaries At 1 January 2005 2,498 248 10,811 4,101 1,624 1,015 - 282 20,579 Developed...

  • Page 202
    ... information on oil and natural gas continued 2004 Movements in estimated net proved reserves a Crude oil million barrels UK Rest of Europe USA Rest of Americas Asia Pacific Africa Russia Other Total Subsidiaries At 1 January 2004 697 236 1,902 385 82 190 - 73 3,565 Developed...

  • Page 203
    ... on oil and natural gas continued 2004 Movements in estimated net proved reserves a Natural gas billion cubic feet UK Rest of Europe USA Rest of Americas Asia Pacific Africa Russia Other Total Subsidiaries At 1 January 2004 2,996 262 11,482 4,212 1,976 640 - 255 21,823 Developed...

  • Page 204
    ... of change in the standardized measure of discounted future net cash ï¬,ows: $ million 2006 2005 2004 Sales and transfers of oil and gas produced, net of production costs (35,800) (24,300) (24,100) Development costs incurred during the year 8,200 7,100 6,300 Extensions, discoveries and...

  • Page 205
    ... following table shows crude oil and natural gas production for the years ended 31 December 2006, 2005 and 2004. Production for the yeara UK Rest of Europe USA Rest of Americas Asia Pacific Africa Russia Other Total Subsidiaries Crude oilb thousand barrels per day 2006 253 61 547...

  • Page 206
    ... information on oil and natural gas continued Net oil and gas wells completed or abandoned The following table shows the number of net productive and dry exploratory and development oil and natural gas wells completed or abandoned in the years indicated by the group and its equity-accounted...

  • Page 207
    ... responsible for preparing the financial statements in accordance with applicable United Kingdom law and United Kingdom generally accepted accounting practice. Company law requires the directors to prepare financial statements for each financial year that give a true and fair view of the state of...

  • Page 208
    ...have also audited the information in the Directors' Remuneration Report that is described as having been audited. We have reported separately on the consolidated financial statements of BP p.l.c. for the year ended 31 December 2006. This report is made solely to the company's members, as a body, in...

  • Page 209
    ...The financial statements on pages 207-220 were approved by a duly appointed and authorized committee of the board of directors on 23 February 2007 and were signed on its behalf by: Peter Sutherland Chairman The Lord Browne of Madingley Group Chief Executive BP Annual Report and Accounts 2006 207

  • Page 210
    Company cash ï¬,ow statement For the year ended 31 December $ million Note 2006 2005 2004 Net cash (outï¬,ow) inï¬,ow from operating activities 9 (3,703) (1,108) 23,913 Servicing of finance and returns on investments 177 110 1,137 Interest received Interest paid (702) (249) (104) Dividends ...

  • Page 211
    ... other finance income. This credit is based on an assessment made at the beginning of the year of long-term market returns on plan assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. BP Annual Report and Accounts 2006 209

  • Page 212
    ... amounts of assets and liabilities at the date of the accounts and the reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from these estimates. 2 Taxation $ million Tax included in statement of total recognized gains and losses 2006 2005 2004...

  • Page 213
    ... undertakings of the company at 31 December 2006 and the percentage holding of ordinary share capital (to the nearest whole number) are set out below. The principal country of operation is generally indicated by the company's country of incorporation or by its name. A complete list of investments in...

  • Page 214
    ...following year, that is, the assumptions at 31 December 2006 are used to determine the pension liabilities at that date and the pension cost for 2007. Financial assumptions 2006 2005 2004 Expected long-term rate of return Discount rate for plan liabilities Rate of increase in salaries Rate...

  • Page 215
    ... plan liabilities (211) (66) 157 Actuarial gain (loss) recognized in statement of total recognized gains and losses 1,120 1,159 197 Movements in benefit obligation during the year 2006 2005 Benefit obligation at 1 January 18,316 18,613 Exchange adjustment 2,524 (2,008) Current service cost...

  • Page 216
    ...(i) 10% of the capital paid up on the preference shares and (ii) the excess of the average market price of such shares on the London Stock Exchange during the previous six months over par value. Repurchase of ordinary share capital The company purchased 1,334,362,750 ordinary shares (2005 1,059,706...

  • Page 217
    ... million), the distribution of which is limited by statutory or other restrictions. The company does not account for dividends until they have been paid. The accounts for the year ended 31 December 2006 do not reï¬,ect the dividend announced on 6 February 2007 and payable in March 2007; this will be...

  • Page 218
    ...-settled incentive share plan for executive directors driven by three performance measures over a three-year performance period. The primary measure is BP's shareholder return against the market (SHRAM) versus that of the companies within the FTSE All World Oil & Gas Index. This accounts for nearly...

  • Page 219
    ...to certain employees that require the group to pay the intrinsic value of the cash option/SAR to the employee at the date of exercise. There are no performance conditions, however participants must continue in employment with BP for the first three calendar years of the plan for the options/SARs to...

  • Page 220
    ... awards and are funded by the group. Until such time as the company's own shares held by the ESOP trusts vest unconditionally in employees, the amount paid for those shares is deducted in arriving at shareholders' equity. See Note 8, Capital and reserves. Assets and liabilities of the ESOPs are...

  • Page 221
    ... within which the grant date of the relevant plan falls. This estimate takes into account the volatility implied by options in the market. Shares granted in 2006 TSR FCF TSR LTL RSP Number of equity instruments granted (million) 8.7 7.8 3.3 0.5 0.5 Weighted average fair value $7.28 $11.23 $4.87...

  • Page 222
    ... supply of other services to the company is not presented in the parent company accounts as this information is provided in the group accounts. 13 Directors' remuneration Remuneration of directors $ million 2006 2005 2004 Total for all directors Emoluments Gains made on the exercise of share...

  • Page 223
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    This page is intentionally left blank. BP Annual Report and Accounts 2006 223

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  • Page 227
    ..., such as change of address, change of ownership, dividend payments, the dividend reinvestment plan or the ADS direct access plan, please contact the Registrar or ADS Depositary. To elect to receive your company documents (such as the Annual Report and Accounts, Annual Review and Notice of Meeting...

  • Page 228
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